Friday, 27 December 2019

Theories of Surplus Value, Part III, Addenda - Part 17

[2.] Interest-Bearing Capital and Commercial Capital in Relation to Industrial Capital. Older Forms. Derived Forms 

“The commercial and interest-bearing forms of capital are older than industrial capital, which, in the capitalist mode of production, is the basic form of the capital relations dominating bourgeois society—and all other forms are only derived from it or secondary: derived as is the case with interest-bearing capital; secondary means that the capital fulfils a special function (which belongs to the circulation process) as for instance commercial capital. In the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself.” (p 468) 

The same thing applies with landed property. Landed property clearly precedes capitalism. Feudal landed property and feudal rent is not the same as capitalist landed property and capitalist rent. Capitalism has to take these existing forms of property and reshape them to meet its own requirements. Under feudalism, it is rent that acts to limit profit, whereas under capitalism it is profit that determines and limits rent. In precapitalist modes of production, because borrowing only occurs in instances of distress, and because the number of lenders is small, interest rates are very high. Under capitalism, borrowing is an integral part of economic life and accumulation, whilst the sources of loanable money-capital are greatly increased, so that interest rates are much lower. Moreover, the rate of interest can never be higher than the average rate of profit, because, if it was, industrial capitalists would make a loss on the money-capital they borrowed to use productively. 

“It encounters these older forms in the epoch of its formation and development. It encounters them as antecedents, but not as antecedents established by itself, not as forms of its own life-process. In the same way as it originally finds the commodity already in existence, but not as its own product, and likewise finds money circulation, but not as an element in its own reproduction. Where capitalist production has developed all its manifold forms and has become the dominant mode of production, interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process. But both of them must first be destroyed as independent forms and subordinated to industrial capital.” (p 468) 

The capitalist state used its power to forcibly reduce the rate of interest charged by usurers, which threatened to impede the initial process of capital accumulation. In a similar way, in an era when the dominant section of the capitalist class holds its wealth in the form of fictitious capital, the capitalist state, via the central banks, used its power to print money so as to buy up those financial assets when their prices crashed, and used measures of austerity to hold back economic growth, after 2010, so as to limit the rise in interest rates, for the same reason. 

“But this is a method characteristic of the least developed stages of capitalist production. The real way in which industrial capital subjugates interest-bearing capital is the creation of a procedure specific to itself—the credit system. The compulsory reduction of interest rates is a measure which industrial capital itself borrows from the methods of an earlier mode of production and which it rejects as useless and inexpedient as soon as it becomes strong and conquers its territory.” (p 468-9) 

The credit system is a creation of capitalism. Credit is divided into commercial credit and bank credit. Commercial credit is a system created by industrial capital itself, whereby each firm provides mutual credit to every other. Within the prescribed limits of the system, it involves no interest being charged. For example, if a firm sells its output to other firms on the basis of payment within 30 days, it essentially lends the equivalent amount of money for 30 days. Provided its customers settle the bill within 30 days, they incur no interest for having been loaned this money for that period. But, the company giving the credit can do this, because it too is likewise given 30 days credit on the commodities it buys from its suppliers. In doing so, each firm is enabled to produce up to a higher level of output than if each had to wait until they had cash to make purchases. 

Its only when credit becomes tight, because payments are not made on time, and there is fear that payment may not be made, so that firms stop offering such credit, that they have to turn to bank credit, to provide such short-term financing. Industrial capital undermines usurer's capital, because each firm can issue its own commercial paper as means of effecting this mutual credit. The amount of actual money required is thereby reduced significantly. The credit takes the form of Bills of Exchange, and, as soon as clearing houses exist, a large number of those bills can then be netted off against each other. 

If A sells £100 of goods to B, for payment in 30 days, and the same occurs with B to C, C to D, D to E, who in turn sells £100 of goods to A, then all of these individual bills cancel each other out. No money is required to finance this trade amounting to £600. 

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